One of the most important propositions of the cardinal utility approach to demand was the Law of Diminishing Marginal Utility. German Economist Gossen was the first to explain it. Therefore, it is called Gossen’s First Law
Definition: According to Alfred Marshall, “The additional benefit which a person derives from a given increase of a stock of a thing diminishes, other things being equal, with every increase in the stock that he already has”. This law simply tells us that, we obtain less and less utility from the successive units of a * commodity as we consume more and more of it.
Assumptions of the Law of DMU :
- Uniform quality and size of the commodity: The Successive units of the commodity should not differ in any way either in quality or size.
- Suitable quantity of consumption: The commodity units should not be very small; e.g. Milk should be in glasses and not in spoons.
- Consumption within the same time: Consumption must be continuous. There should not be too much time difference between the consumption of successive units.
- No change in the mental condition of the consumer during consumption: The consumer should not feel any change in his mental condition due to the consumption of the commodity.
- No change in fashion or taste: The law applies only When consumer’s taste for it remains the same.
- No change in the price of the commodity or its substitutes: The law is based on the assumption that the commodity’s price does not change for successive units. The price of the substitutes is also to be kept at the same level.
- Utility can be measured in cardinal numbers i.e., 1,2, 3, 4,
- Consumer must be rational, i.e., every consumer wants to maximize his satisfaction.
Explanation of Law of Diminishing Marginal Utility: The basis of this law is that every want of us needs to be satisfied only upto a limit. After this limit is reached the intensity of our want becomes zero. It is called complete satisfaction of the want.
Therefore, as we consume more and more units of a commodity to satisfy our need, the intensity of our want for it becomes less and less. Therefore, the utility obtained from the consumption of every additional unit of the commodity is less than that of the units consumed earlier. This can be explained with the help of the following table. TU-Total Utility ,MU-Marginal Utility.
| Apples |
TU |
MU |
| 1 |
30 |
30 |
| 2 |
50 |
20 |
| 3 |
65 |
15 |
| 4 |
75 |
10 |
| 5 |
80 |
5 |
| 6 |
82 |
2 |
| 7 |
82 |
0 |
| 8 |
80 |
-2 |
Suppose a man wants to consume apples and is hungry. In this condition, if he gets one apple, he has maximum utility for it. Let us say that the measurement of this utility is equal to 30 units. Having eaten the first he will not remain that hungry as before. Therefore, if he consumes the second apple he will have a lesser amount of utility from it even if it was exactly like the first one. The utility he gets from the second apple equals 20 units, the third, fourth, fifth and sixth apples give him utilities equal to 15,10, 5 and 2 units respectively.’ Now, if he is given the seventh apple he has no use for it. That means the utility of the seventh apple to the consumer is zero. It is just possible that if he is given the eighth apple for consumption,’ it may be detrimental. Here the utility Will be negative ie., -2. Therefore, we are clear that the additional utility of the successive apples to the consumer goes on diminishing as he consumes more and more of it.
The Law of Diminishing Marginal Utility can be explained with the help of the following diagram.
In the diagram the horizontal axis shows the units of apples and the vertical axis measures the MU and TU obtained from the apple units. The total utility Curve will be increasing in the beginning and later falls. The Marginal Utility curve is falling from left down to the right clearly tells us that the satisfaction derived from the successive consumption of apples is falling.
The Marginal Utility of the first apple is known as initial utility. It is 30 utils. The Marginal utility of the seventh apple is Zero. Therefore, this point is called the satiety point. The Marginal Utility of the eighth apple is -2. So, it is called Negative utility and lies below the X axis.
